Term Premia and Inflation Uncertainty: Empirical Evidence from an International Panel Dataset: Comment
AbstractTerm premia implied by maximum likelihood estimates of affine term structure models are misleading because of small-sample bias. We show that accounting for this bias alters the conclusions about the trend, cycle, and macroeconomic determinants of the term premia estimated in Wright (2011). His term premium estimates are essentially acyclical, and often just parallel the secular trend in longterm interest rates. In contrast, bias-corrected term premia show pronounced countercyclical behavior, consistent with theoretical and empirical arguments about movements in risk premia.
CitationBauer, Michael D., Glenn D. Rudebusch, and Jing Cynthia Wu. 2014. "Term Premia and Inflation Uncertainty: Empirical Evidence from an International Panel Dataset: Comment." American Economic Review, 104 (1): 323-37. DOI: 10.1257/aer.104.1.323
- E31 Price Level; Inflation; Deflation
- E43 Interest Rates: Determination, Term Structure, and Effects
- E52 Monetary Policy
- G12 Asset Pricing; Trading Volume; Bond Interest Rates
- H63 National Debt; Debt Management; Sovereign Debt